I'm trying to set up a workflow to build PS1 low-poly 2D/3D environments and I have a few questions
Blurry Reference Image
Your reference image is blurry because it's only 32 x 32 pixels small and Blender needs to scale it up to the actual size on the screen. The default algorithm to scale an image is Linear which interpolates the pixels. It's a setting of the Image Texture node. Switch the Texture Interpolation setting from Linear to Closest and the image will keep the pixelated appearance.
Units and Sizes
Blender's default Unit System is Metric. It can be changed in the Scene properties but there are only 2 other options: None and Imperial (inches). No pixels. So it's up to you to create a mapping. For example, you can say that 1 pixel of the reference image is 10 cm in Blender. That way your image would be 32 x 32 cm. 
Of course, when you export the 3D object it will be 32 cm tall. This might be too big or too small in the game engine. It's probably best to import a sample asset into Blender and check the size. Then you will have the correct mapping between pixel and meter.
You can check the Dimensions in the &quot;N-panel&quot;, the viewport's side panel. Press N to open it. There you also can lock the scale values so that you cannot accidentally change the image's size.
Helper Add-On
Blender comes with an add-on called &quot;Import-Export: Import Images As Planes&quot;. You can activate it in the preferences. It might be handy if you need to work with a lot of reference images.